May 24, 2011
Yale’s Robert Shiller, the economist who foresaw the implosions of the tech bubble in 2000 and the housing market in 2007, is now closely watching a different asset class. This time, however, it is one that is in an early stage of bubble formation, not of collapse.
“This is my only bullish call that I'm making right now: It's farmland,” Shiller said last week.
Shiller delivered the keynote presentation at the IMCA 2011 annual conference in Las Vegas.
His prognosis for the economy was that a lack of motivation on the part of consumers to spend will impede recovery. Equity returns will be disappointing over the next decade, he said, and TIPS is the only other asset class he likes right now.
But for those who follow Shiller – he writes a regular column in the Sunday New York Times – farmland was the big surprise.
Animal spirits on the wane
Shiller laid out a dour assessment of the economy, based largely on a series of measures that gauge the emotional state of American consumers. His approach, which he wrote about in his recent book, Animal Spirits, co-authored with the Nobel Prize-winning economist George Akerlof, traces back to the theory of John Maynard Keynes.
In 1936, in The General Theory of Employment, Interest and Money, Keynes wrote:
Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.
Shiller’s book is another chapter in the growing field of behavioral economics, and it documents how emotions can lead to irrational economic decisions. In his talk, Shiller said that if people were truly rational, they would be paralyzed by uncertainty. Instead, they exhibit a Keynesian spontaneous urge to action.
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